Medicaid Liens Can Be Reduced

The California Department of Health Care Services has long insisted on enforcing its statutory right to recover Medicaid payments made on behalf of a tort victim when that victim's case is resolved.  The Department seldom agrees to reduce such liens by more than a percentage attributable to the fees and costs incurred by the plaintiff's attorneys.  In short, the Department's policy has been to demand repayment of the lien, reduced (usually by about one-third) to reflect fees and costs, even if that payment would wipe out the victim's recovery. 

A California appellate court has changed the law in this area dramatically.  Citing a United States Supreme Court case, the appellate court ruled that there must be an allocation reflecting the portion of the recovery that relates to the Medicaid payments for past medical services as compared to the overall value of the case.  In other words, if a victim recovers less than the full potential value of a claim (whether because of lack of insurance or comparative negligence issues), the Department can recover no more than that portion of the recovery which represents the ratio between its payments and the value of the case.

The facts of the case were that the victim settled for $2 million, in recognition of problems with the case, including comparative negligence.  The Department asserted a lien of $547,680, less reduction for attorney's fees and costs incurred by the plaintiff.  The trial court, finding that but for the comparative negligence issue the case had a value of $20 million, reduced the Department's lien to $37,767, or 17% of the potential value of the case, because the amount of the lien was 17% of that value.  Lopez v. Daimler Chrysler (Nov. 5, 2009). 

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